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Exports, Gender Wage Gaps, andPoverty in HondurasRafael E. De Hoyos a , Maurizio Bussolo a & Oscar Núñez ba The World Bank, Washington, DC, USAb Independent, Washington, DC, USA

To cite this article: Rafael E. De Hoyos , Maurizio Bussolo & Oscar Núñez (2012): Exports, GenderWage Gaps, and Poverty in Honduras, Oxford Development Studies, 40:4, 533-551

To link to this article: http://dx.doi.org/10.1080/13600818.2012.732562

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Exports, Gender Wage Gaps, and Povertyin Honduras

RAFAEL E. DE HOYOS, MAURIZIO BUSSOLO & OSCAR NUNEZ

ABSTRACT This paper identifies and estimates the reduction in poverty attributable to theimproved opportunities that international trade integration offered to women in Honduras. Theexpansion of the export-oriented maquila sector has brought gender equality both in terms ofemployment and labour earnings. A simulation exercise shows that, at a given point in time, povertyin Honduras would have been 1.5 percentage points higher had the maquila sector not existed. Ofthis increase in poverty, 0.35 percentage points is attributable to the wage premium paid to maquilaworkers, 0.1 percentage points to the wage premium received by women in the maquila sector, and 1percentage point to employment creation.

JEL Classification: F16, I32, J24, J31

1. Introduction

The main objective of this paper is to identify and estimate the strength of the reduction in

poverty caused by the improved opportunities trade expansion offers to women in the case

of Honduras. Introducing the gender dimension into the empirical analysis of the links

between trade and poverty, which has not been prominent in the available literature,1 sheds

light on the trade and poverty debate and, in turn, may improve policy making.

Gender disparities, an important component of overall inequality, may limit the poverty

reduction impact of trade expansion. As in the general case of growth, gains from trade are

more likely to be pro-poor when initial inequality is low (Ravallion, 2001; Bourguignon,

2002). Besides, by hampering growth, high inequality also directly lowers the rate of

poverty reduction. Ample evidence shows that, in spite of recent improvements, there are

still large gender disparities. Due to social norms and discrimination outside as well as

inside the household, women and men differ not only in terms of education but also in

terms of access to labour markets, remuneration, sectoral employment, control over

resources, and roles within households. Because of these disparities, men and women

cannot take similar advantage of the opportunities created by trade liberalization.

ISSN 1360-0818 print/ISSN 1469-9966 online/12/040533-19

q 2012 Oxford Department of International Development

http://dx.doi.org/10.1080/13600818.2012.732562

Rafael E. De Hoyos (corresponding author) and Maurizio Bussolo, The World Bank, Washington, DC, USA.

Email: rdehoyos@worldbank.org; mbussolo@worldbank.org. Oscar Nunez, Independent, Washington, DC,

USA. Email: onunez@yahoo.com

Oxford Development Studies,Vol. 40, No. 4, 533–551, December 2012

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The case of Honduras is especially interesting in this context: it is a poor small open

economy that has recently experienced significant changes both in terms of poverty

reduction and integration with international markets. Between 1991 and 2006, the

proportion of the population living in extreme poverty fell from 61.5% to 47.5%. This

large decrease in extreme poverty can be almost entirely explained by progress in urban

areas, where the headcount ratio fell from 52.2% in 1991 to 27.9% in 2006.2

This poverty reduction took place in a period of unstable and relatively low economic

growth during which time the external sector experienced major changes. Tariff protection

was greatly reduced and, perhaps more importantly for identifying the links between trade,

gender, and poverty, Honduras adopted a series of export-friendly tax incentives and

benefited from increased market access due to external shifts in trade regimes (Caribbean

Basin Initiative). These tax incentives and improved market access helped establish a

maquila industry3: in 1990 maquila exports were almost non-existent but, by 2006, they

comprised almost one-third of all export flows, basically replacing shrinking traditional

exports of coffee and bananas.

Given the large expansion of the export-oriented maquila sector, the close relationship

between the performance of this sector and women’s income, and the significant poverty

reduction that occurred, a study of Honduras in this period could shed some light on how

gender shapes the relationship between trade expansion and poverty. More specifically,

this study tests the hypothesis that the reductions in poverty attributed to the maquila

expansion are, to some extent, explained by gender effects.

An important feature of the Honduran case is that its maquila sector has some strong

gender biases. In terms of employment mix, during the 1991–2006 period, close to 7 out

of 10 maquila employees were women. The results presented here show that, controlling

for worker’s observables such as education, years of experience, industry of occupation,

among others, the maquila sector gender wage gap was about 16 percentage points

smaller than the gap observed in other industries.4 These results are in line with previous

studies showing an increase in female labour demand brought about by trade

liberalization in Latin America. For instance, Ver Beek (2001) finds that wages for

women in the maquila industry are higher in Honduras; and De Hoyos (2011) finds that

female labour participation in Mexico increased as a result of the North American Free

Trade Agreement.5

The econometric analysis and partial equilibrium simulations presented below show

that, at a given point in time, poverty in Honduras would have been 1.5 percentage points

higher had the maquila sector not existed. Of this increase in poverty, 0.35 percentage

points is attributable to the wage premium paid to maquila workers, 0.1 percentage points

to the wage premium received by women in the maquila sector, and 1 percentage point to

employment creation.

The paper is organized as follows. The next section presents an overview of the

Honduran economy between 1991 and 2006. It describes the country’s macroeconomic

performance, poverty and inequality indicators, and trends in international trade in general

and the maquila sector in particular. The following section describes the methodology

used to identify the poverty impact of an expansion in the maquila sector as well as the

gender effects embedded in this relationship. The third section presents the results. The

last section summarizes the paper’s main findings.

534 R. E. De Hoyos et al.

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2. Trade Expansion and Poverty Alleviation in Honduras, 1990–2006

This section includes a brief description of international trade and its composition, the

importance of the maquila industry, and poverty trends in Honduras since 1990. The data

suggests that the increasing integration with international markets, and its potential

poverty-alleviating effect, is associated with Honduras’ trade-liberalizing policies and the

unilateral trade preferences conceded by the USA under the Caribbean Basin Initiative.

2.1 Trade Policy and the Booming Maquila Sector

In 1990, Honduras began the implementation of pro-trade reforms by unilaterally reducing

tariffs, and in 1994 it joined the General Agreement on Tariffs and Trade. The multilateral

agreement became the base for Honduras’ trade policy, granting, at least, Most Favored

Nation treatment to all its trading partners. Honduras is an active member of the Central

American Common Market. It has signed about a dozen bilateral investment treaties and

free trade agreements with countries including Canada, Colombia, Chile, the Dominican

Republic, Mexico, Panama, Switzerland, Taiwan (China), and the USA. Trade-oriented

policies continue to be at the centre of the development agenda in Honduras, which is

participating in the negotiation of a trade agreement between the European Union and

Central America.

As a result of trade policy, the Honduran economy is developing into a more open and

liberalized economy. Its tariff structure is low and more uniform than it used to be, and

the application of non-tariff measures is very limited. The simple average of implicit

tariff rates decreased from more than 16% in 1991–1992 to about 3.3% in 2005–2006

(Figure 1).6 In 2002, after the damaging effects of Hurricane Mitch, international

trade supported a rapid recovery led by the exports of maquila manufacturing and

agroprocessing industries.

Trade openness in honduras, 1990–2006

0

5

10

15

20

Ave

rage

tarif

f (%

)

0.8

0.9

1

1.1

1.2

(Exp

orts

+ im

port

s)/G

DP

1990 1995 2000 2005

Year

Total trade Trade protection

Figure 1. Trade openness in Honduras, 1990–2006.Source: Authors, based on data from the Banco Central de Honduras and Secretarıa de Finanzas.

Exports and Poverty in Honduras 535

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Between 1999 and 2006, exports and domestic markets became more diversified, and

employment and investment (domestic and foreign) grew, particularly in some non-

traditional export activities. The USA remains the country’s principal trading partner, with

Central America, particularly El Salvador and Guatemala, representing the second most

important market. The European Union is third, with exports to Germany particularly

high. In recent years, exports to Mexico and Canada have also increased significantly.

Maquila has become the single most important export activity in Honduras. In 2006, it

represented 27% of total exports of goods and services, up from virtually zero in 1990.

Between 1990 and 2006, the value added of exports by the sector rose from US$16 million

to US$1062 million, growing at an impressive average annual rate of 33% (Table 1).

According to data from Honduras’ Central Bank (Banco Central de Honduras, 2006), in

the same period, the average annual real wages paid by maquila firms increased steadily

during the 1990s, stabilizing after 2000, partly due to high inflation rates, at around 40 000

lempiras or around US$3000 (Table 1). This evolution indicates an improvement in the

living standards of these workers.

Additionally, the percentage of total exports accounted for by the maquila sector rose

from 1.5% in 1990 to 26% in 2006 (Figure 2). During the same period, the share of

traditional export crops, such as coffee and bananas, declined from 51% to 16%. In contrast

to the sluggish evolution of coffee and bananas, exports of other non-traditional products—

particularly farmed shrimp, minerals, palm oil, and other agroindustries—expanded.7

The unilateral trade preferences conceded by the USA under the Caribbean Basin

Initiative established in 1983, and a variety of other factors (such as logistics, abundant

and low cost of labour, and the granting of export incentives) consolidated the situation of

Honduras as a major exporter of textiles and apparel to the USA.8 In 1995, the value added

of the maquila industry represented 2.2% of GDP and 14.5% of total manufacturing

production; by 2006 the sector accounted for 6.5% of GDP and 36.3% of manufacturing

production (Banco Central de Honduras, 2007). During this period the number of maquila

firms more than doubled, the number of employees working in the sector increased

by 140%, and average annual wages in the sector rose from US$1454 to US$3823 (see

Table 1). In 2001 the expansion of the maquila sector came to a halt, mainly as a result of

the slowdown in the US economy. The sector resumed growth in subsequent years.

Honduras’ maquila sector is highly concentrated on the production of textiles and

apparel. In 2006, 313 firms belonged to the sector, 51% of which produced textiles and

apparel. These firms employed 77.2% of the total workers in the maquila sector. The rest

of the maquila sector is made up of firms engaged in manufacturing electronic components

for automobiles, furniture, and wood products (23.3% of all firms); trade-related activities,

such as the import and sale of spare parts for machinery (18.8%); and services, such as data

processing (6.7%) (Banco Central de Honduras, 2007).

2.2 Poverty and Workers in the Maquila Sector

In 1990, more than 60% of Honduras’ population lived in rural areas; by 2006 this figure

had fallen to 54%. Over the same period, GDP grew at the moderate annual rate of 3.2%,

and the average annual increase in per capita household expenditure was 0.4%. Although

Honduras’ growth achievements are far from remarkable, and disparities in the

distribution of income are growing, the proportion of the population classified as poor fell

almost 13 percentage points between 1991 and 2006 (Table 2).

536 R. E. De Hoyos et al.

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Table

1.

Dy

nam

icp

erfo

rman

ceo

fth

emaquila

sect

or

inH

on

du

ras,

19

90

–2

00

6

Mea

sure

19

90

19

95

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Nu

mb

ero

ffi

rms

24

13

52

18

23

02

52

27

32

94

30

63

13

Nu

mb

ero

fem

plo

yee

s(t

ho

usa

nd

s)9

.05

5.0

10

6.5

94

.41

05

.51

14

.21

19

.91

25

.21

30

.1A

ver

age

real

wag

e(l

emp

iras

of

19

99

)1

43

50

24

99

74

31

91

42

69

53

97

09

43

08

94

25

10

42

41

04

13

74

Av

erag

ere

alw

age

(US

do

llar

so

f1

99

9)

98

91

55

73

06

33

11

32

88

03

10

23

08

33

10

63

10

7V

alu

ead

ded

16

16

35

75

56

06

13

71

08

15

96

91

06

2

Notes:

(1)

Av

erag

ew

age

corr

esp

on

ds

toan

nu

alfi

gu

res.

(2)

Val

ue

add

edis

mea

sure

din

mil

lio

ns

of

curr

ent

US

do

llar

s.Source:

Au

tho

rs,

bas

edo

nd

ata

fro

mB

anco

Cen

tral

de

Ho

nd

ura

san

dU

SD

epar

tmen

to

fL

abo

r.

Exports and Poverty in Honduras 537

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Notwithstanding a nationwide reduction in the poverty rates, there has been little

poverty alleviation in rural areas, particularly in the number of households below the

extreme poverty line.9 In contrast, urban areas in Honduras have made substantial progress

against poverty, with the extreme poverty headcount ratio plummeting from 52.2% in

1991 to 27.9% in 2006.

How much of the significant reduction in poverty can be explained by themaquila boom?

The answer depends on the proportion of households in the neighbourhood of the poverty

line whose incomes depend on the maquila sector; the change in real wages of maquila

workers living in households near the poverty line; and the possibility for people near the

poverty line to get jobs in the maquila sector. The share of Honduras’ workforce working in

the maquila sector increased from 1.3% in 1991 to 4.4% in 2006; during this time the

prevalence of poverty among maquila workers fell 22 percentage points (from 54.6%

to 32.9%, or a 40% reduction), an achievement well above the national level (Table 3).10

This is an indicator that the overall poverty reduction documented in Table 2 was at least

Composition of exports in honduras, 1990 – 2006

0

20

40

60

80

Per

cent

of t

otal

exp

orts

1990 1995 2000 2005

Maquila(value added)

Coffee and bananas

Other

Figure 2. Composition of exports in Honduras, 1990–2006.Source: Authors, based on data from the Banco Central de Honduras.

Table 2. Poverty headcount ratio and Gini coefficient in Honduras, 1991–2006 (%)

Welfare measure 1991 1995 2001 2006

Extreme povertyRural 68.0 65.1 69.2 65.1Urban 52.2 41.9 32.7 27.9National 61.5 55.1 51.2 47.5Moderate povertyRural 80.3 75.6 78.1 73.6Urban 79.4 74.4 63.5 59.6National 79.9 75.1 70.9 67.0Gini coefficientNational 52.4 55.5 56.6 58.6

Source: Authors’ computation based on data from EPHPM.

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partly caused by fast-growing labour participation and earnings in the maquila sector. The

potential contribution of the maquila sector to poverty alleviation in Honduras is

significant: in 1991, only 3.3% of the total households above the poverty line had a member

working in a maquila; in 2006 this proportion increased to 10.8%.11 This is hardly

surprising given the high number of jobs created in the maquila industry, which had a direct

positive income effect for those workers who found a job in this sector, and an indirect

effect via the effect on the general equilibrium wages in the economy (Table 3).

An important component of the welfare effect brought about by an increase in maquila

sector activity is its capacity to create new jobs. The proportion of total employment in the

maquila sector increased steadily from 1991 (Table 4). Although the change in the gender

mix in the sector favoured men, in 2006 still more than half of all maquila workers were

women. Two other important aspects highlighted in Table 4 are the increase in the

working-age population and the increase in under-employment. These trends suggest that

the Honduran economy was unable to create new jobs needed to satisfy the

demographically driven increase in labour supply, contributing to the proliferation of

Table 3. Maquila performance and national poverty rates, 1991–2006

Item 1991 1995 2001 2006

Total number of workers inthe maquila sector

19 400 45 327 90 016 106 501

Percentage of active population workingin the maquila sector

1.3 2.6 4.3 4.4

Percentage of maquila workers living underthe poverty line

54.6 58.0 37.6 32.9

Percentage of non-poor households withfamily member working in the maquilasector

3.3 4.4 10.7 10.8

Source: Authors’ computation based on data from EPHPM with the moderate poverty line set by InstitutoNacional de Estadısticas (INE).

Table 4. Labour participation and the maquila contribution, 1991–2006 (%)

Item 1991 1995 2001 2006

Working-age population (15–65) as a percentage of thetotal population

51.7 52.1 53.4 56.1

Percentage of the working-age population thatare active

59.4 61.0 60.8 58.3

Percentage of the active population thatare employed

81.1 76.3 78.5 75.1

Percentage of the employed population thatare men in maquila

0.5 0.9 1.9 2.7

Percentage of the employed population thatare women in maquila

1.1 2.4 3.5 3.1

Percentage of active population, under-employed 14.4 19.4 17.1 22.6Percentage of active population, unemployed 4.5 4.3 4.3 2.3

Source: Authors’ computation based on data from EPHPM.

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part-time jobs, most of which are in the informal sector. In addition, unable to find jobs in

their home country, many young Hondurans have migrated, mainly to the USA.

3. Methodology

The trade reforms introduced in Honduras during the 1990s together with the unilateral

trade preferences conceded by the USA under the Caribbean Basin Initiative could be seen

as an external shock redistributing resources to the maquila sector. Redistribution of

productive factors occurs through price mechanisms. That is, increases in labour demand

in the maquila sector (particularly female labour) cause a rise in the relative wages of

labour, an increase in labour participation, or both (again, with a strong bias favouring

female workers). The poverty impact of the changes brought about by trade reform can be

analysed using the empirical framework developed in this section.12

Household h is defined as poor if its per capita household income (or expenditure), yh, is

below a predetermined poverty line, z. At the national level, poverty indices can take into

account the proportion, depth, and severity of poverty. These three aspects of poverty (the

poverty headcount, the poverty gap, and the distance from the poverty line) are estimated

using the poverty measures developed by Foster, Greer, and Thorbecke (1984):

Pa ¼1

N

XNh¼1

z2 yh

z

� �a

;ðyh # zÞ; ð1Þ

where N is the total population and a is a parameter that penalizes the differences between

the income of the poor and the poverty line. Let us define the income of household h as the

sum of incomes of all household members derived from various sources:

yh ¼Yh

Gh

¼XGg¼1

wg;h þ Yoh; ð2Þ

where wg;h is the wage of member g in household h and Yoh represents income from other

sources of household h. Hence yh measures per capita household disposable income, the

welfare measure used here. The maquila sector is linked to household welfare—and hence

poverty—by changes in wages and employment attributable to the sector’s performance.

Following human capital theory, the log of wages is defined as a function of personal

characteristics and a random component. In order to identify the conditional gender wage

gaps and the wage effects resulting from the maquila sector, we introduce a dummy

variable for women and for workers in the maquila sector:

lnðwiÞ ¼Xj

bjxi;j þ d1Dw þ gDm þ 1i: ð3Þ

According to Equation (3), the wage of worker i is a function of j personal characteristics,

xi,j; a dummy variable, Dw, which takes the value 1 when the worker is a woman; a dummy

variable for workers in the maquila sector, Dm; a set of parameters; and a random

component, 1i.13 To test the hypothesis that part of the relationship between the maquila

expansion and poverty operates through gender, let us decompose the wage effects

brought about by the expansion of the maquila sector and express this as a linear function

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of gender:

›lnðwiÞ

›Dm

¼ g ¼ d2 þ d3Dw: ð4Þ

Substituting Equation (4) into Equation (3) yields

ln ðwiÞ ¼Xj

bjxi;j þ d1Dw þ d2Dm þ d3DwDm þ ui: ð5Þ

Parameters d1 and d2 in Equation (5) measure the gender and maquila premium,

respectively; d3 captures the wage effects of the maquila sector that operate through

gender. An alternative interpretation for the interactive effect, d3, can be found in the

literature on the economics of discrimination, which posits that the gender wage gap tends

to be smaller in export-oriented sectors (Becker, 1971). The gender wage gap is affected

by the export-oriented maquila sector by the increased competition brought about by trade

integration (Artecona & Cunningham, 2002; Arbache & Santos, 2005). The interactive

effect, d3, is equal to the difference in the gender wage gap in and out of the maquila sector

(Table 5). If the maquila sector is more competitive (and hence employers care more about

workers’ productivity rather than their gender) and there is some degree of discrimination

in the labour market, the wage gap between male and female workers in the maquila sector

should be smaller than in other sectors; d3 should thus be greater than zero.

The excluded category in Equation (5) is men outside the maquila sector; the three

parameters capturing the gender, maquila, and interaction effects are interpreted as shifts in

wages with respect to this control group. To clarify these effects, we show the wage premia

assigned by Equation (5) to the different population subgroups. A woman working in the

maquila sector, for example, will receive a market premium equal to d1 þ d2 þ d3 (with

respect to men outside the maquila sector) controlling for the market remuneration to her

personal characteristicsP

jbjxi;j. The wage premium of women working in the maquila

sector with respect to women in the other sectors will be equal to

ðd1 þ d2 þ d3Þ2 d1 ¼ d2 þ d3.

So far the analysis has not incorporated any time dimension. As noted earlier, from a

theoretical point of view, trade reforms can be seen as a shock redistributing resources

across the different sectors of the economy. This redistribution process occurs through

price changes or changes in market returns to personal characteristics. We are interested in

the welfare effects brought about by a change in maquila employment, a change in the

premia given to workers in the maquila sector, and changes in the overall gender gap, and,

in particular, the interactive effect capturing the gender wage gap differential between the

export-oriented sector and other sectors. The change in the wage premia can easily be

Table 5. Wage premia by subgroup

Sector of employment

Item Maquila Non-maquila

Men d2 ControlWomen d1 þ d2 þ d3 d1

Wage gap (men/women) 2ðd1 þ d3Þ 2d1

Source: Based on Equation (5).

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measured by introducing a time dimension to Equation (5). Define t as time dummies, and

redefine Dw ¼ D1, Dm ¼ D2, and DwDm ¼ D3 as follows:

ln wti

� �¼

XJj¼1

bjxti;j þ

X3k¼1

dkDtk þ

XTt¼2

ftt þX3k¼1

XTt¼2

ltkDtkt þ nti: ð6Þ

The first term on the right-hand side of Equation (6) captures the returns to personal

characteristics; the second term captures the effects shown in Table 5; the third term shows

time controls or year-dummies that capture overall macroeconomic changes; the fourth

term allows for time-varying gender, maquila, and interactive effects; and the last term is a

normally distributed random component. Parameters ltk (called difference-in-difference

(DID) estimators) reveal how the premia shown in Table 5 vary over time.14 If the trade

reforms in Honduras had a greater positive effect on women in the maquila sector (making

their real wages increase faster than wages in other categories over time), ltk should be

significantly different from zero and positive.

4. Results

The poverty effects of a boom in the maquila sector are estimated using data from the

Encuesta Permanente de Hogares de Propositos Multiples (EPHPM)—Honduras’

nationally representative household survey—for 1991, 1995, 2001, and 2006. The time

span covered by these surveys (1991–2006) captures a period of significant tariff

reduction and strong growth of the maquila industry (see Figure 1).

All the regression results for the four specifications of Equation (6) account for

EPHPM’s survey design (that is, clustering, stratification, and expansion factors on point

estimators and standard errors); all the results presented show heteroskedastic-robust

standard errors and control for year and industry fixed effects (Table 6).15 The first

specification shows the result of a standard human capital equation, with the log of wages a

function of years of schooling and its squared form, experience and experience squared,

and a dummy variable for urban workers. The results of this specification are as expected.

One additional year of schooling yields a 10% increase in wages; experience has a

positive, though marginally decreasing, effect on earnings; and urban wages are about

16% higher than rural wages. Female wage-earners in Honduras earn 27% less than men,

once differences in education, experience, industry of occupation and location (rural vs

urban) are taken into account. Regardless of their gender, maquila workers earn a

conditional wage premium of 31% over workers outside the sector. These results are

robust, both qualitatively and quantitatively, to differences in model specification.

The second specification includes three dummy variables capturing the gender wage

gap, a maquila-specific wage premium, and a premium associated with women in the

maquila sector, respectively. Recall that the interactive term measures the difference in the

gender wage gap inside and outside the maquila sector. Between 1991 and 2006, women

earned average wages that were 28.7% lower than those of men. The average wage of

workers in the maquila sector was more than 20% higher than those of workers outside the

sector. Controlling for observable characteristics, female workers in the maquila sector

earned 9.5% (<228.7 þ 21.6 þ 16.6) more than men working outside the maquila

sector, and 38% (<28.7 þ 9.5) more than women working outside the sector (Table 7).16

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The results for specification 2 reveal another important feature of the maquila sector: the

fact that the gender wage gap is 16.6 percentage points smaller than the gap observed in

industries outside the sector. For this reason, the increase in the importance of the maquila

industry in total employment had a gender-equalizing effect.

Table 6. Regression results

Item Specification 1 Specification 2 Specification 3a Specification 3b

Core variableSchooling 0.0953** 0.0954** 0.0956** 0.0956**Schooling squared 0.0020** 0.0020** 0.0019** 0.0019**Experience 0.0192** 0.0185** 0.0185** 0.0185**Experience squared 20.0000** 20.0000** 20.0000** 20.0000**Urban dummy 0.1630** 0.1632** 0.1635** 0.1635**

Maquila and women controlWomen dummy (d1) 20.2710** 20.2871** 20.3684** –Maquila dummy (d2) 0.3139** 0.2157** 0.2276** –Women £ maquila (d3) 0.1664** 0.2578** –

Dynamic effectsWomen

1991 – 20.3684**1995 0.0447 20.3237**2001 0.0727** 20.2957**2006 0.1650** 20.2034**

Maquila1991 – 0.2276**1995 20.1815* 0.04612001 0.0117 0.2393**2006 0.0367 0.2643**

Women £ maquila1991 – 0.2578**1995 0.0799 0.3377**2001 20.0742 0.1836**2006 20.2280** 0.0298

Year controls Yes Yes Yes YesIndustry controls Yes Yes Yes YesConstant 6.4083** 6.4260** 6.5318** 6.1634**R-squared 0.47 0.47 0.47 0.47

*Significant at 5%; **significant at 1%.Note: The dependent variable is the log of wages. Schooling is measured as the years of formal education.

Industry controls include dummy-variables for each of the nine industries at the one-digit level ofindustrial aggregation; the agricultural sector was chosen as the base category. Specifications 3aand 3b are two different ways of presenting the same equation. Sample size is 43 268.

Table 7. Wage premium results from specification (2) (%)

Item Maquila Non-maquila

Men d2 ¼ 21.5 ControlWomen d1 þ d2 þ d3 ¼ 9.5 d1 ¼ 228.7Wage gap (men/women) 2ðd1 þ d3Þ ¼ 12 2d1 ¼ 28.7

Note: All the parameters are significant at the 1% level.Source: Authors’ estimates.

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The wage premia shown in Table 7 are the average over the entire period of analysis;

these estimates do not consider any time dimension, as observations from the four

household surveys are pooled in a single sample. One of the hypotheses outlined earlier

was that the maquila boom of the 1990s resulted in a growing wage premium for

workers in the sector. To test this hypothesis, we formulate specification (3a) in Table 6,

which allows for dynamic effects (the wage premia related to gender, the maquila

sector, and the interaction between these two can take different values over time). All

the time-interacting terms, or DID estimators, take 1991 as the base year, capturing the

change in the parameter over time with respect to the initial year. Consider first the DID

estimator for the premium received by workers in the maquila sector. The lack of

statistical significance for this estimator indicates that the maquila premium remained

constant during the time period analysed here, except in 1995. This is not the case for

the gender wage gap, which decreased over time (significantly so in 2001 and 2006).

The reduction in the gender wage gap outside the maquila sector partly explains the

lack of significant dynamic effects on wage premia for women working in the maquila

sector. In fact, the DID estimator on the interactive term is negative and significant in

2006, implying that women did not receive an extra wage premium for working in the

maquila sector in 2006 (that is, the gender wage gap was the same in and out of the

maquila sector).

The lack of significant dynamic effects deserves some explanation. Although the results

on maquila wage premia suggest some level of labour market segmentation, a minimum

degree of labour mobility would be enough to offset any long-term trend in wage

differentials between the maquila and other sectors. As shown by the identical

specifications (3a) and (3b), maquila workers earned wages that were about 24% higher

than workers outside the sector in all years but 1995. This differential may be enough to

attract the workers the industry needs,17 creating no incentives for entrepreneurs to raise it

over time. With some labour mobility, the trade-mandated increase in female labour

demand would not only manifest itself as an increase in wages of women in the maquila

industry but also has an impact on the rest of the economy, thereby reducing the overall

gender wage gap. The long-term reduction in the gender wage gap (which had fallen 7.3%

from the 1991 baseline by 2001 and 16.5% by 2006) can thus be at least partly explained

by an increase in female labour demand in the maquila sector.18

4.1 The Poverty Impact of a Growing Maquila Sector

To measure the poverty effects of the maquila boom documented above, we construct a

distribution of hypothetical household per capita income that captures what the poverty

level in Honduras would have been if the maquila industry had ceased to operate in any

given year. The short-term income effect of a sudden elimination of the sector can be

decomposed into two separate impacts: wage premia and employment. This section

presents two simulations, one examining what the poverty level in Honduras would

have been had the maquila industry not paid a wage premium, and one examining what

the poverty level would be if all maquila jobs had been eliminated. These

counterfactuals illustrate the short-term poverty impact of income changes originating

in the maquila sector. We ignore the long-term or general equilibrium effects of the

maquila boom.19

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To formalize the simulation process, we redefine Equation (2) in terms of the results

from specification (3b) in Table 6:

Yh ¼XGg¼1

wg;h þ Yoh;

wti ¼ exp

XJj¼1

bjxti;j þ

XTt¼2

ftt þX3k¼1

XTt¼1

lt

kDtkt þ nti

( ):

ð7Þ

The wage equation in Equation (7) allows for different gender, maquila, and maquila–

gender effects for each year.20 Hypothetical wages can be constructed based on expression

(7), assuming that, say, the premia for workers in the maquila sector, lt2t ¼ (1991, 1995,

2001, 2006) are equal to zero or that wages for all maquila workers are set to zero. In 1991,

for example, the simulated wages for workers in the maquila sector would have been

22.7% lower than their observed level (see specification 3b in Table 6). Adding the

simulated wages to the exogenous household incomes (Yoh) and dividing this by the

number of household members yields the simulated household per capita incomes,

yih ¼ Y ih=Gh. These values are used to compute hypothetical poverty indices:

Pia ¼

1

N

XNh¼1

z2 yihz

� �a

;ðyh # zÞ: ð8Þ

The difference between the observed and simulated poverty, Pia 2 Pa, can be thought of

as the amount of poverty reduction attributed to the maquila premia, employment, or both,

depending on the simulation.21 Because both the maquila premia and the jobs created by

this sector had positive income effects, it will not come as a surprise that these impacts

reduce poverty. The aim of the exercise is to quantify the importance of the maquila

industry for poverty alleviation in Honduras.

Three simulations are run, two of which capture the poverty effects attributable to the

maquila wage premia (as shown in specification 3b in Table 6) and one of which creates a

hypothetical world in which Honduras has no maquila jobs. In the first simulation, the

year-specific maquila sector wage premia are subtracted from wages of all maquila

workers (Table 8). This counterfactual captures the difference between the observed

poverty headcount and the headcount ratio that would have prevailed in Honduras had

maquila workers not enjoyed a premium like the one shown by specification (3b) in Table

6. The second simulation captures the poverty effects of the maquila sector wage

premium, including its effect through gender. In this simulation both sets of maquila

Table 8. Estimated poverty headcounts in the absence of maquila effects, 1991–2006

Headcount ratio (%) 1991 1995 2001 2006

Actual 79.9 75.1 70.9 67.0Without maquila premium 80.0 75.1 71.5 67.6Without maquila and gender premia 80.1 75.3 71.6 67.6Without premia and maquila employment 80.5 75.9 73.0 69.4

Note: Poverty is measured using a moderate poverty line. Simulations are based on estimated parametersfrom specification (3b) in Table 6.

Source: Authors’ estimates.

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premia (the maquila effect and the women £ maquila effect in Table 6) are subtracted

from the wages of women in the maquila sector.22

Given that all parameters measuring wage premia in the maquila sector are non-

negative, it is not surprising that eliminating them increases poverty. If the maquila sector

had not paid a premium, the moderate national poverty headcount in 2001 would have

been 71.5% instead of the observed level of 70.9%; if the premium enjoyed by women in

the maquila sector had also been eliminated (together with the interaction effect), the

poverty headcount would have risen to 71.6%. By itself the maquila premium accounted

for 0.31 percentage points in the national poverty level (0.44 when allowing for gender-

specific effects).

A third simulation captures the cumulative poverty effects of maquila premia and

employment. This simulation sets the wage of all maquila workers equal to zero in order to

produce a rough idea of how important the maquila sector is for poverty alleviation in

Honduras.23 The results show that had there been no maquila jobs in Honduras in 2001, the

moderate poverty headcount would have been almost 2 percentage points higher on

average (73% instead of 70.9%).

The results presented in Table 8 are complemented by the presentation of the marginal

contribution of each component (maquila, maquila £ women, and employment) shown in

Figure 3.24 On average the maquila sector accounts for an almost 1.45 percentage point

reduction in the poverty headcount, of which 1 point is attributable to employment

creation, 0.35 points to maquila wage premium, and 0.10 points to the wage premium of

women working in the maquila sector.

These poverty effects seem rather small. One has to bear in mind, however, the limited

impact of the maquila sector in terms of overall household income. Wages paid in the

maquila sector account for less than 4% of total household income in Honduras.

Figure 3. Percentage of total poverty headcount attributable to various factors.Source: Authors’ simulations, based on estimation results from specification 3b in Table 6.Note: Percentages are computed as the marginal difference in the poverty headcount shown by thecumulative effects displayed in Table 8.

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Furthermore, the incidence of poverty among maquila workers is lower than the national

average (see Table 3). Finally, as shown by the results of the dynamic model, the premia

paid in the maquila sector did not increase as a result of the boom. These factors explain

why the reduction in poverty attributable to the additional premium paid to workers in the

maquila sector (including the women’s premium) is on average less than 0.5%.

Over time this premium contributed more and more to poverty reduction: in 1991 it

accounted for 0.2% of the decline in poverty; by 2006 it had contributed 0.6%. Expansion

of the maquila sector means that more people benefit from the additional gender-maquila

premia and more individuals escape poverty. Although the maquila boom of the 1990s did

not have a significant effect on wage premia, given the jobs it created, particularly jobs for

women, it certainly helped alleviate poverty in Honduras.

Two important qualifications of the results concerning the poverty effects of the maquila

boom are necessary. First, these results represent an upper bound of the contribution of the

trade (maquila)–gender link to poverty reduction given that the simulation considers the

extreme situation in which no other jobs would exist without themaquila sector ones. A full

general equilibrium analysis is needed to overcome this limitation, but applied general

equilibrium analysis has, in turn, other problems. The second qualification is that even if the

effect is large relative to the small number of women involved, this does not imply that

expanding the maquila sector is the most efficient policy for poverty reduction. Growth of

maquila employment has some indirect gender equalizing benefits, but policies directly

affecting inequality of opportunity in education access and other forms of gender

discrimination are likely to produce larger effects.

5. Conclusions

Between 1990 and 2006, Honduras experienced significant poverty reduction and a

booming maquila sector, a sector that intensively employed female workers. This article

identifies and estimates the strength of the reduction in poverty caused by the improved

opportunities the expanding sector offered to women.

The analysis shows that after controlling for observable characteristics, workers in the

maquila sector earned wages that were about 30% higher than those of workers outside the

sector. This gap was fairly stable over time. Firms in the maquila sector appear to be less

discriminatory, as suggested by a gender wage gap that is 16% smaller than the gap outside

the maquila sector.25 This result is in line with the literature on labour market

discrimination, which posits that firms operating in more competitive product markets

should be less discriminatory in their hiring or remunerating policies. Given the intensity

of its use of female labour, the expanding maquila sector contributed to the economy-wide

reduction in the gender wage gap in Honduras.

With these econometric results, we ran a partial equilibrium simulation exercise

showing that, at a given point in time, poverty in Honduras would have been 1.5

percentage points higher had the maquila sector not existed. This simulation is also useful

for answering the main question posed at the outset of the paper: how important are gender

effects in determining the relationship between trade changes (specifically maquila

expansion) and poverty reduction? Of the total maquila-related poverty reduction of 1.5

percentage points, 1 point, or 69% of the total, is due to employment creation; 0.35

percentage points, or 24%, is attributable to the wage premium paid to maquila workers

(both women and men); and 0.1 percentage points, or 7%, to the wage premium received

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specifically by women in the maquila sector. Given the limited poverty effects of maquila

expansion overall (around 1.5 percentage points) and despite its positive impact via gender

equality, maquila promotion, by itself, has limited effectiveness and is not by itself an

adequate solution to the problem of poverty in Honduras.

Notes

1 A large literature describes in detail the globalization-growth-inequality-poverty nexus. See for recent

examples Nissanke & Thorbecke (2006), Ravallion (2001) and Bussolo & Round (2006). This

literature, however, does not focus on gender. In their exhaustive survey on trade and poverty, Winters

et al. (2004) mention just a few case studies in which gender plays a role, indirectly highlighting the

limited attention that the recent literature has dedicated to the gender topic.2 Authors’ computations based on data from INE (several years).3 A manufacturing firm is defined as a maquila when it operates within a fiscal regime that allows it to

import intermediate goods on a duty-free or tariff-free basis, process or assemble them (labour value-

added), and then re-export the final goods, usually to the originating country.4 Note that both men and women working in the maquila sector earn more than their peers employed

outside this sector. This means that the gender equalizing effect of the maquila is not at the expense of

lower wages for men.5 For a summary of the poverty and inequality effects of trade liberalization in Latin American, see De

Hoyos & Lustig (2009).6 The average implicit tariff was calculated as import tariff revenue/imports fob (free on board),

excluding oil.7 For an estimation of the ex-ante poverty effects of trade liberalization in Honduras focusing on the

agricultural sector, see Republica de Honduras (2005).8 For a brief description of the main factors behind the increase in Honduras’ maquila exports, see

Appendix 1.9 People in rural areas, particularly poor small-scale farmers, were seriously affected by Hurricane Mitch.

10 Note that classifying maquila workers as living in poverty does not imply that their wages are below

the poverty line. Indeed, maquila workers get salaries above the poverty line, but this income source,

by itself, is not enough to push a family of five in Honduras out of poverty. Therefore, in those cases in

which the maquila wage is the only income source in a typical Honduran household, the worker and

his/her family would still be poor (see Ver Beek, 2001 for details).11 Although there is some wage dispersion among maquila workers that contributes to the explanation of

why some of these workers still live in households below the poverty line, earnings in this sector are

relatively well distributed. For instance, in 1991 the Gini coefficient for wages was 43.3% compared to

18.5% in the maquila sector. By 2006, after a significant increase in the number of maquila workers,

the Gini coefficient grew to 28.8%.12 A similar methodology, with an application to Mexico, can be found in Artecona & Cunningham

(2002) and De Hoyos (2009, 2011).13 Given data restrictions, the textile and apparel industry is used as a proxy for themaquila sector. In 2006,

the textile and apparel industry comprises 77% and 79% of the total labour force and value added of the

maquila sector, respectively (Banco Central de Honduras, 2007). For more details see Appendix 2.14 In a strict sense, these are triple difference estimators, because they capture differences between men

and women, between workers inside and outside of the maquila sector, and over time.15 The industries included are mining; manufacturing; electricity, gas, and water; construction;

commerce; restaurants and hotels; transport and communication; financial services; and other services.

The excluded category is the agricultural sector.16 Consider the case of a woman employed outside the maquila sector. According to specification 2 of

Table 6, she earns 28.7% less than men outside the maquila sector. Because she is not working in the

maquila sector, she does not benefit from the 9.5% premium that women in that sector enjoy.

Therefore, on average a woman employed outside the sector earns 38% less than a woman employed in

the maquila sector.17 In fact the proportion of the active female labour population employed in the maquila sector rose from

4.3% in 1991 to 12.4% in 2001.

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18 The results presented in this section are only indicative of the potential effect of the maquila expansion

on the economy-wide gender wage gap and should not be taken as conclusive evidence.19 Using a dynamic Computable General Equilibrium model, Morley et al. (2008) estimate the ex-ante

general equilibrium poverty effects of the Central American Free Trade Agreement (CAFTA) in

Honduras.20 The wage equation in Equation (7) includes the estimated individual-specific residuals nti using the

results from specification 3a in Table 6.21 Nicita & Razzaz (2003) estimate a model with enough economic structure to capture the employment

effects associated with a boom in the textile and apparel industry. The authors find that for each new

job created in the textile industry, 4.5 individuals experience an increase in their purchasing power.22 Because only significant parameters were taken into account in this micro-simulation, the maquila

effect in 1995 is equal to zero.23 This simulation is not a counterfactual of how the Honduran economy would have looked in the

absence of a maquila sector. Creating such a scenario would require estimates of the general

equilibrium effects of the sector. Therefore this simulation should be seen as an upper bound estimate

of the poverty reduction effects of the maquila boom.24 The poverty effects attributable to the different components are equal to the marginal difference in the

poverty headcount shown by the cumulative effects presented in Table 8. There is an obvious problem

of path dependency in our simulations.25 The difference declined in 2006.26 The departments with a high concentration of maquila firms are: Cortes, Atlantida, Francisco Morazan,

Yoro, Santa Barbara, Comayagua.

References

Arbache, J. S. & Santos, M. H. (2005) Trade openness and gender discrimination, University of Brasilea, Brazil,

available at SSRN: http://ssrn.com/abstract¼812564

Artecona, R. & Cunningham, W. (2002) Effects of trade liberalization on the gender wage gap in Mexico, Policy

Research Report on Gender and Development Working Paper Series No. 21, The World Bank, Washington,

DC.

Banco Central de Honduras (2006) Balanza de pagos y comercio exterior de Honduras (Tegucigalpa: Banco

Central de Honduras).

Banco Central de Honduras (2007) Actividad maquiladora en Honduras 2006 y expectativas 2007 (Tegucigalpa:

Banco Central de Honduras).

Becker, G. S. (1971) The economics of discrimination (Chicago and London: University of Chicago Press).

Bourguignon, F. (2002) The growth elasticity of poverty reduction: explaining heterogeneity across countries and

time periods, DELTA Working Papers 2002–2003, DELTA (Ecole normale superieure).

Bussolo, M. & Round, J. (2006) Globalisation and Poverty: Channels and Policy Responses (Warwick:

Routledge).

De Hoyos, R. E. (2009) Expansion comercial, pobreza y desigualdad en Mexico despues del TLCAN, in: Flores,

Trevino & Valero (Eds) La economıa Mexicana en 19 miradas (Mexico: Editorial Purrua).

De Hoyos, R. E. (2011) Female labor participation and occupation decisions in post-NAFTA Mexico, Research in

Labor Economics, 33, pp. 85–127.

De Hoyos, R. & Lustig, N. (2009) Apertura comercial, desigualdad y pobreza, Resena de los enfoques

metodologicos, el estado del conocimiento y la asignatura pendiente, El Trimestre Economico, Fondo de

Cultura Economica, 302, pp. 283–328.

Foster, J., Greer, J. & Thorbecke, E. (1984) A class of decomposable poverty measures, Econometrica, 52,

pp. 761–766.

INE (Instituto Nacional de Estadısticas) (several years) Encuesta Permanente de Hogares de Propositos

Multiples, 1991, 1995, 2001, and 2006 (Tegucigalpa: INE).

Low, P., Eiermartini, R. & Richtering, J. (2005) Multilateral Solutions to the Erosion of Non-Reciprocal

Preferences in NAMA, WTO Working Paper ERSD–2005–2005, World Trade Organization, Geneva.

Morley, S., Nakasone, E. & Pineiro, V. (2008) The Impact of CAFTA on Employment, Production and Poverty in

Hondruas, Discussion Paper No. 748, International Food Policy Research Institute, Washington.

Nicita, A. & Razzaz, S. (2003) Who benefits and how much?: how gender affects welfare impacts of a booming

textile industry, Policy Research Working Paper Series 3029, The World Bank.

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Nissanke, M. & Thorbecke, E. (2006) The Impact of Globalization on the World’s Poor, Transmission

Mechanisms (Basingstoke and New York: Palgrave Macmillan).

Ravallion, M. (2001) Growth, inequality and poverty: looking beyond averages, World Development, 29, pp.

1803–1815.

Republica de Honduras (2005) Estimacion del Impacto del DR-CAFTA en el Bienestar de los Hogares,

Documento de Trabajo, Secretaria de Estado del Despacho Presidencial, Honduras.

Skripnitchenko, A. & Abbott, P. (2003) Trade in Apparel to the U.S. under the Caribbean Basin Initiative:

A Dynamic Investment Approach. Paper Presented at the International Conference “Agricultural Policy

Reform and the WTO: Where Are We Heading?” Capri, Italy, 23–26 June.

Ver Beek, K. A. (2001) Maquiladoras: exploitation or emancipation? an overview of the situation of maquiladora

workers in honduras, World Development, 29, pp. 1553–1567.

Winters, L. A., McCulloch, N. & McKay, A. (2004) Trade liberalization and poverty: the evidence so far, Journal

of Economic Literature, 42(1), pp. 72–115.

Appendix 1. Main Factors Behind Expansion of the Maquila Industry in Honduras

US Trade Preferences

Outward processing is essentially a preferential trade arrangement that exempts from

import duties all the materials used in a sector whose products are entirely exported (i.e. a

maquila). The outward-processing programmes in apparel and textiles under the

Caribbean Basin Initiative (CBI) are among the most successful preferential trade

arrangements; since the 1980s they have become an important part of US apparel imports.

The CBI, established in 1983, originally left in place custom duties on a small group of

products, including textiles and clothing. In 1986, the USA instituted the Special Access

Program (SAP), which encouraged outward-processing trade in apparel and textiles with

the beneficiary countries of the CBI. It also provided preferential market access and

maintained the rules of origin. In 2000 the USA adopted the Caribbean Basin Trade

Partnership Act of 2000 (CBTPA), which improved preferential treatment of outward-

processing apparel from CBI countries. The new act eliminated all tariffs (which averaged

5.8% in 1998–1999) and maintained the SAP requirements of the usage of US-made

materials from import duties (see Skripnitchenko & Abbott, 2003). The CBTPA spurred

the maquila industry in the CBI region, offsetting the effect of “NAFTA parity”.

Export Incentives, Logistics, and the Cost of Labour

The development of the maquila industry has been supported by a special legal framework

that provides incentives such as temporary import and duty-free import on inputs for

exports, originating in 1976 with the adoption of the law establishing the free zone of

Puerto Cortes (Decree No. 356 of July 1976). A second law (the Decree No. 30 of 20

December 1984) created the temporary import regime. The law establishing export

processing zones (Decree No. 37–87 of April 1987) enhanced the expansion of the

maquila industry, providing incentives to develop large private industrial parks in which to

establish maquila enterprises. Decree No. 130–98 of 20 May 1998, amended the law

establishing the free trade zone of Puerto Cortes to allow the organization of free trade

zones in any part of Honduras. These export-supporting schemes are subject to the

disciplines of the World Trade Organization (WTO) Agreement on Subsidies and

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Countervailing Measures. However, as a developing country listed in Annex VII(b) of the

Agreement, Honduras can apply to maintain these schemes beyond 2009 if per capita GNP

does not surpass $1000 in constant 1990 US dollars for three consecutive years. Honduras’

relatively short end-to-end logistic time, good facilities in free export zones, the largest

port in Central America, and fairly low wages are important assets for the continued

growth of Honduras’ maquila industry. In March 2006 Honduran and US authorities

signed the Container Security Initiative, a partnership that should help accelerate the entry

of cargo from Puerto Cortes into the USA.

The DR–CAFTA Free Trade Agreement and the WTO

The DR–CAFTA spurred the maquila sector in Central America. However, the 1 January

2005 inclusion of textiles and apparel in the WTO rules has resulted in declining demand

in the USA for CBI outward-processing apparel, which faces strong competition from

countries such as Bangladesh, China, and Vietnam. In addition, the negotiations within the

deferred Doha Round that are expected to reduce tariffs in the industrial sector (known as

NAMA, for non-agricultural market access) are likely to result in the erosion of the DR-

CAFTA market access preference for textile and clothing. Low et al. (2005) argue that

Honduras will be one of the developing countries most severely affected by the erosion

preferences in NAMA, indicating that an important part of the erosion would come from

the textile and apparel sector.

Appendix 2. Identifying Employees in the Maquila Industry from Honduras’

Household Surveys (EPHPM)

Before 2006 the Honduras household survey (EPHPM) did not include information on

maquila labour participation. This Appendix shows how workers were classified into

maquila versus non-maquila for years prior to 2006.

In 2006, the EPHPM shows that firms within the maquila regime and part of the textile

and apparel industry are highly concentrated in a few departments (or provinces) in

Honduras.26 In all years, the EPHPM reports information on employees working in the

manufacture of textiles, knitting mills or the manufacture of apparel, except footwear, as

classified by the UN International Standard Industrial Classification of all Economics

Activities, Third Revision (ISIC Rev. 3).

For years other than 2006, when the question about working in a maquila was not

included, a worker was classified as being part of the maquila industry when the following

conditions were satisfied: currently employed, employed by the private sector, working in

the textile and apparel industry, working in an establishment with 10 or more workers, and

located in departments where maquila operate.

In order to evaluate the “goodness of fit” of these classification criteria, workers were

classified into maquila and non-maquila in 2006 following the procedure described above

and compared with the observed classification. In 98% of the cases, this procedure

correctly identified workers in the maquila sector and part of the textile and apparel

industry, giving us a high level of confidence in the approach.

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